This Chancellor has a habit of surprising with major announcements on savings and investments in his Budgets and Autumn Statements.
Examples of this are the scrapping of Child Trust Funds, extending the range of assets and the size of the Isa allowance, and - of course - his landmark “pension freedom” reforms.
Yet many industry observers will have expected little going into this particular Budget with Mr Osborne having backed off his planned frontal assault on pension tax reliefs in recent weeks.
Others have brooded darkly over other potential tactics to squeeze pension investors, such as further cuts to the annual or lifetime allowances - none of which have transpired.
Instead, true to form, the Chancellor has yanked some plump rabbits out of his hat for investors, with an unexpected hike in the Isa allowance to £20,000 from April 2017; the launch of a new Lifetime Isa for those under 40-years of age; and oh-so-juicy cuts to capital gains tax.
All of these will be welcomed by financial advisers and will help mend fences with affluent Britons aggrieved at relentless cuts to pension allowances.
The Isa hike is huge surprise, albeit a positive one, given the allowance was materially upgraded so recently and with a commitment to merely adjust it for inflation each year.
It means a couple can tuck away an astonishing £40,000 a year, which is not bad when the average UK salary is little more than £27k. Even the HMRC’s own data has revealed that only 5 per cent of Isa investors fully use their annual allowance - and that was when it was just £11,280 a year.
The Lifetime Isa is targeted at younger savers, with those under 40 able to save up to £4,000 a year and receive a £1,000 top up, until they are aged 50.
The Isa hike is huge surprise, albeit a positive oneThis is in many ways an attempt to migrate savers voluntarily to something akin the Chancellor’s much touted ‘Pensions Isa’ without ruffling the feathers of established pension investors further.
Deep cuts to capital gains tax rates, from 28 per cent to 20 per cent at the higher rates, are welcome in themselves but should also provide a big boost in demand for Enterprise Investment Schemes (EIS) as investment into EIS enables an investor to defer a CGT liability.
Importantly, EIS deferral can be used to defer a capital gain made up to 36 months before the EIS shares are subscribed for. Therefore, anyone who has incurred a CGT in the liability in the last three years and has not deferred it, has an additional reason to explore the joys of EIS.
In addition to deferring their CGT liability, with the potential to recrystallise it three years later at the new lower rate of tax, investors can also receive a 30 per cent Income Tax credit on the way in.
Thanks George, I’ll toast that with a duty-frozen pint tonight.
